Facilities Management Outsourcing: Prioritizing Activities Critical to Success

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This ISG white paper examines key functions in facilities management
outsourcing, describing specific considerations and challenges for each. The
author makes a distinction between critical activities that deserve a high
degree of management attention, and activities that may merit less
consideration, thereby freeing up management to focus on what really
matters.

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Facilities Management Outsourcing: Prioritizing Activities Critical to Success

  1. 1. www.isg-one.comFACILITIES MANAGEMENT OUTSOURCINGPrioritizing Activities is Critical to SuccessBy Pankaj Agarwal, Principal Consultant, ISG
  2. 2. FACILITIES MANAGEMENT OUTSOURCING ■ PANKAJ AGARWAL 1INTRODUCTIONAny outsourcing arrangement involves a range of complex issues related topersonnel, management sponsorship, and strategic fit and alignment.A facilities management (FM) initiative, by its nature, must address a numberof unique criteria related to these issues. For executives on both the clientand provider side, a further challenge is prioritization to ensure that the rightactivities are receiving adequate management attention.This ISG white paper examines key functions in facilities managementoutsourcing, describing specific considerations and challenges for each. Theauthor makes a distinction between critical activities that deserve a highdegree of management attention, and activities that may merit lessconsideration, thereby freeing up management to focus on what reallymatters.
  3. 3. FACILITIES MANAGEMENT OUTSOURCING ■ PANKAJ AGARWAL 2FM OUTSOURCING CRITICAL SUCCESSFACTORSRelationship ManagementThe contract manager on the client side sets andmaintains the tone for the relationship, work completionand contract management. His or her responsibilitiesinclude defining the appropriate attitude and behavior ofthe client team and of internal business units;specifically, ensuring civility towards the service provider,and promptly responding to service provider concerns.The client side also needs to focus on outcomes (asmeasured by key performance indicators) rather thantasks performed. The client manager must proactivelydiscourage the growth of a shadow organization, whereclient managers watch over the shoulder of the supplierto identify deficiencies. A key element in avoiding this isto ensure that existing managers are included in thetransfer of employees to the supplier. A smaller retainedorganization is often more effective than a large retainedorganization for this reason.The service provider’s management team can play a keyrole as the “eyes and ears” of the client, since theprovider’s team outnumbers the client’s and is closer towhere the work is performed. An effective provider isproactive – and will escalate issues before they areescalated by the client’s customers – and will take theinitiative to minimize recurring customer-generated workorders by implementing routine and preventativemaintenance. Regular communication of work orderstatus can increase customer satisfaction and avoidsecond-guessing and duplication of effort.CommunicationWhile critical to any outsourcing relationship, ongoingcommunication and attention to detail are particularlyessential to facilities management. In an HR or Financeoutsourcing arrangement, internal customers deal withservice providers on a relatively infrequent basis, andinteractions typically involve specific tasks or functions.Services delivered by a facilities provider, however,impact all of a client’s employees on a daily basis, andinvolve multiple points of potential failure. Consider: Ifsomeone spills something in a lobby, if a parking lot isn’tcleared of snow, if offices are too hot or too cold, ifrestrooms are dirty, the facilities management serviceprovider is accountable.Because of the range of scope involved, service levels areusually more tightly defined for an external provider, andare also more tightly adhered to by the outsourcer. This“by-the-book” approach can result in customers feelingthat an FM provider is delivering inadequate service.Moreover, after outsourcing, many customers tend tohave unrealistically high expectations of their newprovider relative to the levels of service they hadpreviously received internally. Finally, potential problemscan occur during transition, since every activityperformed by a previous technician is seldom recorded.While these slips may be understandable, they are highlyvisible to customers and are likely to make animpression.The client side’s relationship management function hasto own responsibility for setting and communicatingexpectations. In many cases, the transition to a third-party service provider is soft-pedaled and internalcustomers are told “nothing will change,” when in factthe service provider has been mandated to cut costssignificantly with the understanding that service levelswill be lowered.
  4. 4. FACILITIES MANAGEMENT OUTSOURCING ■ PANKAJ AGARWAL 3Executive SponsorshipAs with any outsourcing arrangement, top managementsponsorship of the initiative is essential in facilitiesmanagement. One key task for the client-side contractmanager is to manage executive-level expectationsaround the initiative. Specifically, the contract managerneeds to communicate to the executive team that, inorder to realize anticipated benefits, the business mayexperience an increase in staff complaints as well as seesome service levels lowered (e.g., trash removal changedto every three days instead of daily, daytime officecleaning instead of at night). Obtaining buy-in from theexecutive’s direct reports and/or peers can facilitatesenior-level support, as can developing and presenting aproactive communication plan around the initiative.Indeed, ISG has observed numerous initiatives where aweak project manager sabotages an initiative. In oneinstance, while the business case for outsourcing wasbeing developed, the client’s relationship manager (RM)waited for all stakeholders to provide input into theprocess, constantly delaying the project as newstakeholders stepped up, until it died a slow death bycommittee. Potential savings were also lost since theoutsourcing initiative didn’t move forward. Rather thanmanaging expectations, adhering to timelines, andstating the anticipated business benefits of the initiative(20 percent cost savings), the RM waited for someoneelse to make the go-forward decision or to cancel theproject. Strong executive sponsorship and interventionwould have saved this initiative.Strategic Fit and AlignmentStrategic fit and alignment between the client andservice provider is also important to an FM deal’ssuccess. For example, a service provider that takes on asubstantially smaller contract than usual will be unlikelyto provide its best personnel and managerial attention tothat client. Similarly, a large global corporationmaintaining a Class A standard may not be a good fit fora provider offering a low-cost, low-quality valueproposition to smaller businesses.To ensure strategic alignment, key questions a clientshould pose to prospective providers include thefollowing: How many clients do you service that have similarsize, scope of work, and service levels to ours?What percentage is this of your total client base? How do you ensure that accounts such as ours getthe high-quality service we expect?Alignment of Relationship IncentivesAlignment of incentives between the client and serviceprovider teams merits significant upfront attention. Thepotential value of many contracts goes unrealized whenboth parties resort to finger-pointing, or worse, when heclient team perceives its role as finding the cracks in theservice provider’s work.To facilitate teamwork, the client-side manager needs toset the correct tone. For example, a dying indoor plant,an un-cleaned closet or an un-emptied trashcan has toreflect on both sides, not just on the provider. Onespecific way to build this sense of partnership is to havethe client RM team input work orders themselves ratherthan provide a list of them to their outsourcedcounterpart.The best way to ensure mutual accountability is for theclient and service provider teams to have agreed sets ofCritical and Key Performance Indicators. These caninclude: No more than 5% of non-urgent work ordersdelayed by more than 24 hours 97% of delayed work orders resolved within24 hours 97% uptime of non-critical space 99.9% uptime of critical space (e.g. data centers,executive offices) 90% of respondents report 4 or 5 in overallsatisfaction on follow-up surveysIf both sides are accountable for achieving thesestandards, they are compelled to work together. This isnot as simple as it sounds, however. In one examplewe’ve observed, a client’s FM team was constantlyberated by its head of real estate and facilitiesdepartment for not providing timely updates on delayedwork orders. Rather than informing the client themoment the delays went beyond the threshold ofacceptability, the provider reported a summary atmonth’s end. By making timely and accurate reporting ofdelays a KPI, the situation was corrected and the client’sFM team was better able to manage internal clientexpectations.
  5. 5. FACILITIES MANAGEMENT OUTSOURCING ■ PANKAJ AGARWAL 4LESS CRITICAL FACTORSTechnology AlignmentSince facilities management sits outside of the corebusiness for most companies, alignment between theclient’s and supplier’s technology platforms is of minimalimportance. Most large FM service providers have goodIT capabilities that are flexible enough to meet mostclient requirements around security and other areas.Ideally, FM work order input is integrated with theclient’s existing user desktop, but many successfulpartnerships input work orders using a Web browser.Similarly, while embedding the service provider’sreporting into the client’s reporting dashboard may bedesirable, an additional service provider dashboard canalso be effective. In fact, since FM is not core to mostbusinesses, clients tend to have inferior reporting toolsprior to outsourcing, so adding the service provider’sreporting dashboard can eliminate the need to querymultiple disparate systems for generating reports.The supplier should be able to provide monthly details ofall expenses, correctly coded in the client’s chart ofaccounts, so that accounting entries related to themonthly invoice can be directly uploaded without reworkby the client accounting team.Contractual ClausesEffective contractual provisions, including clearly definedscope of work, pricing provisions and termination rights,provide incentives to keep both parties together.However, unless both parties benefit from theoutsourcing arrangement and meet at least some of theirgoals, relationship pressures will build. As highlightedabove, the role of the relationship manager, backed bytop management, is paramount to success.While a strong contract may be easy to recognize buthard to describe in detail, some specific contractualpitfalls and problems to avoid include the following: Signing a contract with the assumption that theprovider’s charges are capped at a maximum. Thiscan be a problem if the statement of work does notinclude all the activities previously performed,requiring the client to pay for “extra” un-contractedservices. A “Dragnet Clause” can protect againstsuch a situation. Signing a contract with the assumption that servicelevels will be unchanged from previous contracts. Ifservice levels are not clearly defined, or ifcontractual clauses to ensure adherence are notincluded, the client may have to pay extra forobtaining previous service levels. The transition plan is not carefully ironed out andincluded in the contract, leading to delays, outages,and lots of extra work by the client’s team. Reporting requirements are not laid out in thecontract, so any customization has to be paid forseparately. No transition support is required by the contract,leaving the client at risk if they move to a differentservice provider.Change OrdersChange orders, considered by some to be the bane of acontract, can be minimized by creating automatedmechanisms for handling scope expansion or contractionwithin the contract, and are generally not onerous to anadequately staffed contract management team. Whilechange is natural in any agreement, both due to lack ofadequate discovery and changes in the underlyingbusiness, in an FM arrangement, clear procedures forhandling change, together with mutual flexibility andunderstanding can ensure that the relationship managersgovern the contract, rather than the accountants andlawyers.CONCLUSIONFacilities management represents a unique set ofoutsourcing management challenges. As with many otherservices, no one tends to notice FM until something goeswrong. Given the ubiquity of services delivered within abusiness facility – HVAC, sanitation, security, landscaping– and all the potential points of failure on any given day,an FM provider and client team face a formidable “devilin the details” task. Ensuring collaboration andcommunication between the two parties, definingmeaningful incentives and building organizationalsupport for the initiative are essential to success.
  6. 6. 121912© Copyright 2012 Information Services Group – All Rights ReservedFor further information, please contact Alex Kozlov, Director of Marketing, Americas, at alex.kozlov@isg-one.comor +1 617 558 3377.Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory servicescompany, serving more than 500 clients around the world to help them achieve operational excellence. ISG supportsprivate and public sector organizations to transform and optimize their operational environments through research,benchmarking, consulting and managed services, with a focus on information technology, business process transformation,program management services and enterprise resource planning. Clients look to ISG for unique insights and innovativesolutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience ofglobal leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800employees and operates in 21 countries. For additional information, visit www.isg-one.com.LOOKING FOR A STRATEGIC PARTNER?

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